Had a perfectly wonderful weekend with nary a care in the world and apparently neither did anyone else. Things appear to be exactly as I left them except that the football season has ended in England which means no more premiership matches in the middle of the week forcing me to occupy my spare time with less important things such as bank crises and ridiculous fiscal and monetary policies seemingly all around the world. So much to do.
One thing I will have more time for is Tim Geithner's new book which he has been humping unmercifully on every media outlet and all the ships at sea. So far, no one has panned it or gotten terribly upset. It seems to be self-serving, then again I can't remember the last time a personal memoir reached the conclusion, "I am an idiot," so one can overlook that. I expect to be able to comment a good deal more once I get my free--preferably autographed--copy, but there were a couple of things that struck me in the overall impression that can be gleaned from the reviews and certain quotes that have emerged.
To begin, let me say that comments from people for whom I have a great deal of respect indicate that in the midst of the crisis, Geithner did a hell of a job, which is all the more striking as it is clear that his credentials for becoming the head of the New York Federal Reserve, pretty much confirmed by his own words, were the political and personal ties to the Clintonistas headed by Bob Rubin whose political and financial influence crossed party lines and intertwined with the Goldman Sachs connection both at Treasury and at the Chairmanship of the NY Fed. He was as I used to refer to him as a "Suit" and quite frankly, though he has grown in stature I have a feeling that he is still a suit although one with the ability to stay cool and calm in the midst of a crisis which is no mean feat and one not to be belittled. So, he's a guy who hadn't a clue as to what the job was about who apparently rose to the occasion and performed. Good on ya.
Then again, in his published excerps, in speaking of the catalysts of the crisis, Bear Stearns and Lehman Brothers, he seems to overlook the fact that these were not surprises to which one awoke on a Monday morning; the seeds of collapse had been sown years before and had well-taken root and most importantly, had been recognized by those with more experience and savvy. The truth is his institution, which was best equipped to recognize and assess the systemic risk that was growing on a daily basis was caught seemingly unawares, and it to that he must answer.
It is simple to speak in hindsight but the colossal mistake was to "save" Bear and destroy Lehman, more so because there was no secret that Lehman had been warned time and again as to the state of their financial condition and "saving" Bear should have in no way be thought of relieving the pressure on Lehman. Bear could have been allowed to fail without so much as a whimper which might…and I emphasize, "might"…have influenced future developments especially on the part of Lehman which could have defused or certainly alleviated the destruction that followed. In my mind, there is much of the failure in regulatory bodies…not the lack of regulation…that was central to this crisis. But that is another book to be written by someone else and some other time.
With all of that said, he should be a good read and help him in his retirement planning. Little has been said as to what he thinks about the "reforms" to the system, or if it has been said, I missed it. After all, I was with grandchildren which tends to make me less perceptive to external sounds. I'm sure he feels much has been accomplished but more could be done. Memo to Tim: get real. Maybe you didn't know squat before but by this time you should be pretty much clued in. Then again, that may be asking for a bit too much.
Showing posts with label Geithner. Show all posts
Showing posts with label Geithner. Show all posts
Tuesday, May 13, 2014
Tuesday, September 3, 2013
SEPTEMBER SONG
It was written by Charlie Chaplin and is really a very good, somewhat mournful composition. It also has nothing whatsoever to do with banking, finance or global affairs but it was written by a clown and as the month will probably be dominated by another clown who happens to be the President of the United States (I know, this is not supposed to be political, but MY GOD!), if not the words but their mournful nature seem apropos has we stumble into another little dust-up apparently because stupidity must be rewarded and the President of the United States painting himself into a corner just can't be allowed, ol' boy.
The funny thing is so little is being affected by the national debate over Syria as on a spate of good economic numbers, markets opened higher today only to stagger at midday but rally a bit at the close; in other words, nothing new. The 10 year briefly touched 2.90 before retreating to 2.85 and change, but even that appeared to be more in reaction to a firming view that in the Summers/Yellen brawl--which is becoming very heated by the way--Larry is ahead on points and that is interpreted as meaning tapering is just around the corner. I still have my money on the gal; The Leader has too many people in his own party mad at him already and Pelosi just backed his play in Syria. Think that came for free? Now what is really spooky is that The Suit, of unhappy memory, is being pushed once again as the compromise candidate. There are two minor things wrong with that idea. First, it would destroy any independence at the Fed as Geithner is a tool and second, he is considered a lightweight in international circles which does us no good at all if things get sticky.
And they will it appears with Christine blabbering today about how the IMF will need more resources to support the emerging markets if needed. When the head of the IMF says something like that it's almost a lock that they will be needed--whether they are or not if you get my drift. What also troubles me ( I know, I sound like a broken record) is this entire state of affairs sounds as though it is on cruse control, lacking any form of adult supervision as The Leader twists and turns, watching the guy he defeated, John McCain, outlining and directing his foreign policy in the driveway of the White House on national television. This is surreal, sez me, whilst Over There, the Euros are calling everyone they know Over Here asking what the hell is going on. Now, if this is how the issue of War and Peace is being handled, how are we to handle global financial collapse.
OK. Hyperbole. We are no where near that, but in three weeks we have an election in Germany and how that turns out could really put a cat among the pigeons. September is one of those 30-day months and two are already behind us. Only 28 to go; the days really do dwindle down to a precious few when you're having fun.
The funny thing is so little is being affected by the national debate over Syria as on a spate of good economic numbers, markets opened higher today only to stagger at midday but rally a bit at the close; in other words, nothing new. The 10 year briefly touched 2.90 before retreating to 2.85 and change, but even that appeared to be more in reaction to a firming view that in the Summers/Yellen brawl--which is becoming very heated by the way--Larry is ahead on points and that is interpreted as meaning tapering is just around the corner. I still have my money on the gal; The Leader has too many people in his own party mad at him already and Pelosi just backed his play in Syria. Think that came for free? Now what is really spooky is that The Suit, of unhappy memory, is being pushed once again as the compromise candidate. There are two minor things wrong with that idea. First, it would destroy any independence at the Fed as Geithner is a tool and second, he is considered a lightweight in international circles which does us no good at all if things get sticky.
And they will it appears with Christine blabbering today about how the IMF will need more resources to support the emerging markets if needed. When the head of the IMF says something like that it's almost a lock that they will be needed--whether they are or not if you get my drift. What also troubles me ( I know, I sound like a broken record) is this entire state of affairs sounds as though it is on cruse control, lacking any form of adult supervision as The Leader twists and turns, watching the guy he defeated, John McCain, outlining and directing his foreign policy in the driveway of the White House on national television. This is surreal, sez me, whilst Over There, the Euros are calling everyone they know Over Here asking what the hell is going on. Now, if this is how the issue of War and Peace is being handled, how are we to handle global financial collapse.
OK. Hyperbole. We are no where near that, but in three weeks we have an election in Germany and how that turns out could really put a cat among the pigeons. September is one of those 30-day months and two are already behind us. Only 28 to go; the days really do dwindle down to a precious few when you're having fun.
Thursday, January 10, 2013
A YEAR OF LIVING DANGEROUSLY
Welcome back. Sorry I am a bit delayed in getting started again, but by this time I'm sure you realize that I'm not the most on-time guy you ever met--especially when the grand kids are in the middle. They win every time which we didn't on January 7. In fact it was worse than being a Republican in Washington which we will get to in a minute, but first, over there.
It's still Christmas but slowly, things are coming back to life with the realization that the three big events which will shape the EU this year will be the elections in Italy and Germany and the referendum in the UK as to its future membership. As I had mentioned, I had overlooked the the UK for much of last year but it is now impossible to do so. We are heading over in a month's time (a shaky date contingent on a number of things at which point I will have a better perspective) but right now, with a certain dependency on the manner in which the question is put, one should expect the UK to leave the EU despite the now somewhat screeching implorings of The Leader and his administration. The effect would be a sea-change and important to the readers of this ongoing plot because of the effect this would have on finance and banking world-wide. Sadly, I am forced to admit at this time that I am clueless, but given that London is, and will probably remain, the center for international finance no longer in coalition with the Euros, any end-game one could dream up might well wind up as the state of play. Near term, I suspect things will remain quite for a bit: now, quiet doesn't mean better--it just means...well...quiet as witnessed by Spain's 10 year auction today which went well by any standard although one should keep in mind that it was revealed about a week ago that Spain has picked the pockets of it's government pension funds to purchase it own debt. My word, the place is looking more and more like Illinois every day. Segue to over here.
The Leader is heady with power and prepared to pick a fight on just about anything following his victory in the first battle of the Great Tax War. Now one battle does not a campaign make and the foreboding specter of the debt ceiling looms before us, but it is clear that the man is in no mood to compromise and therefore it remains to be seen just how much fight is left in the Republicans in the House before a total victory can be declared. In the mean time, the new generals are being put forward, most notably Jacob Lew as the replacement for The Suit, a notorious gutter fighter as opposed to more amiable candidates such as Billy the Dud from the NY Fed and The Bair With Very Little Brain who was dying for the job.
While all of this was going on, insanity began to creep out into the open regarding what the administration might do to avoid a fight altogether.
There are two beauties out there. One is the striking of the One Trillion Dollar Platinum Coin to be deposited with the Fed By Treasury thereby by-passing Congress and providing all the funding The Leader needs...provided we don't run out of Platinum. The other is the tried and true issuance of script in lieu of currency with which we paid our maturing debts just like California did a few years ago. "Hey, no problem! As soon as we get over this little hurdle we'll redeem all that's out there but in the mean time, you can use the stuff or sell it to our banks who we will instruct to purchase the same. After all, the buggers have been hoarding TRILLIONS!"
What seems to have been overlooked by the geniuses behind this idea is the fact that we don't have to merely refinance a trillion or eight this year but it appears that we are in need of almost $1.5 TRILLION OF NEW MONEY! Let's have a contest: how many of you think the amount available, outside of direct purchases by the Fed, will exceed $.50? Love to hear from you.
Finally, after a couple of years, the first set of regs were released by the Consumer Protection Agency, you know, that piece of insanity created by Lizzy Warren, now junior Senator from Mass. Joy at the wisdom of the thing. It seems that if the banks play by the rules which include a repayment formula of no more than a requirement of 46% income to debt, the banks will granted "safe harbor" status whilst having been placed into a position where they can no longer make "sub-prime" mortgage loans unless they are Fanny and Freddie qualified. Absolute genius screamed the Times and those of it's ilk. Funny, I have always been of the view that the only really new idea that has come around in a while was the Sermon on the Mount. Everything else is simply a variation on a theme. This reg is no different, only in my time it was called "Red Lining;" I guess what side of the fence you are on makes a difference. Wonder what Rev. Jackson thinks?
It's still Christmas but slowly, things are coming back to life with the realization that the three big events which will shape the EU this year will be the elections in Italy and Germany and the referendum in the UK as to its future membership. As I had mentioned, I had overlooked the the UK for much of last year but it is now impossible to do so. We are heading over in a month's time (a shaky date contingent on a number of things at which point I will have a better perspective) but right now, with a certain dependency on the manner in which the question is put, one should expect the UK to leave the EU despite the now somewhat screeching implorings of The Leader and his administration. The effect would be a sea-change and important to the readers of this ongoing plot because of the effect this would have on finance and banking world-wide. Sadly, I am forced to admit at this time that I am clueless, but given that London is, and will probably remain, the center for international finance no longer in coalition with the Euros, any end-game one could dream up might well wind up as the state of play. Near term, I suspect things will remain quite for a bit: now, quiet doesn't mean better--it just means...well...quiet as witnessed by Spain's 10 year auction today which went well by any standard although one should keep in mind that it was revealed about a week ago that Spain has picked the pockets of it's government pension funds to purchase it own debt. My word, the place is looking more and more like Illinois every day. Segue to over here.
The Leader is heady with power and prepared to pick a fight on just about anything following his victory in the first battle of the Great Tax War. Now one battle does not a campaign make and the foreboding specter of the debt ceiling looms before us, but it is clear that the man is in no mood to compromise and therefore it remains to be seen just how much fight is left in the Republicans in the House before a total victory can be declared. In the mean time, the new generals are being put forward, most notably Jacob Lew as the replacement for The Suit, a notorious gutter fighter as opposed to more amiable candidates such as Billy the Dud from the NY Fed and The Bair With Very Little Brain who was dying for the job.
While all of this was going on, insanity began to creep out into the open regarding what the administration might do to avoid a fight altogether.
There are two beauties out there. One is the striking of the One Trillion Dollar Platinum Coin to be deposited with the Fed By Treasury thereby by-passing Congress and providing all the funding The Leader needs...provided we don't run out of Platinum. The other is the tried and true issuance of script in lieu of currency with which we paid our maturing debts just like California did a few years ago. "Hey, no problem! As soon as we get over this little hurdle we'll redeem all that's out there but in the mean time, you can use the stuff or sell it to our banks who we will instruct to purchase the same. After all, the buggers have been hoarding TRILLIONS!"
What seems to have been overlooked by the geniuses behind this idea is the fact that we don't have to merely refinance a trillion or eight this year but it appears that we are in need of almost $1.5 TRILLION OF NEW MONEY! Let's have a contest: how many of you think the amount available, outside of direct purchases by the Fed, will exceed $.50? Love to hear from you.
Finally, after a couple of years, the first set of regs were released by the Consumer Protection Agency, you know, that piece of insanity created by Lizzy Warren, now junior Senator from Mass. Joy at the wisdom of the thing. It seems that if the banks play by the rules which include a repayment formula of no more than a requirement of 46% income to debt, the banks will granted "safe harbor" status whilst having been placed into a position where they can no longer make "sub-prime" mortgage loans unless they are Fanny and Freddie qualified. Absolute genius screamed the Times and those of it's ilk. Funny, I have always been of the view that the only really new idea that has come around in a while was the Sermon on the Mount. Everything else is simply a variation on a theme. This reg is no different, only in my time it was called "Red Lining;" I guess what side of the fence you are on makes a difference. Wonder what Rev. Jackson thinks?
Wednesday, December 5, 2012
THE LEADER SPEAKS
Buoyant in his belief that the prize is almost firmly in his grasp, The Leader was tougher than ever in his remarks concerning the "fiscal cliff" this morning. Whilst everyone expected a reprise of, "no hirer tax rates for the rich (to be defined), no deal," The Leader added a new requirement: the debt ceiling limitation had to be taken off the table. For the Republicans to agree to that would amount to complete capitulation and it would appear that this is the prize which Mr. Obama seeks: the destruction of the Republican opposition for a considerable period of time. I know, I promised never to engage in political rhetoric but when the financial and the political become so interlinked one must, despite all good intentions slip bravely into the swamp. As an aside, The Suit confirmed The Leader's intentions this afternoon in an interview on CNBC.
Many have said that the definition of a good negotiation is one in which neither side is entirely happy. Perhaps. But more importantly, the definition of a good negotiator is one who, knowing he holds all the cards, leaves something on the table for the next time. In the next 26 days we shall find out just how good is The Leader. If he holds to this line, it is over the cliff we go I fear and then what happens is any one's guess.
From afar, it must certainly look as though we have all collectively--or separately--lost our minds and I further suspect that The Leader, having somehow attained the moral high ground over the past four years appears to be the eventual winner. As a football coach once said, "It is what it is..." but the cause for concern has been made immeasurably higher I feel as if it is truly capitulation that is the goal it may be unattainable even under the best the Speaker of the House can do because he just may not have the votes to deliver a signed surrender document. With that in mind, over the cliff we go and frankly, one has to ask one's self, "Self, do I want to be part of this game any longer?" At that point the sheer exhaustion and disinterest on the part of natural purchasers of Treasury obligations coupled with a complete lack of understanding as to what the game now is could result in an attitude in the face of the next auction of, "I just may sit this one out." The absent(s) will be noticed; the slip in coverage ratio will be noticed; interest rates will move upward and the next big sound will be the talking heads trying to figure out what a rise of 50 b.p. across a $16 trillion bundle of debt might mean to the economy. These things have a way of feeding upon one another. Somebody will buy it but by that time the damage will have already been done. I think Krugman has done his job; he has convinced the administration that the Market will always be there for the United States so additional spending is not a problem. He may be right--probably is--but at what cost, immediate and future? I don't know; sadder yet, neither does he.
Over there, the Dutch Auction continues apace with report terrific results for the Greeks (as predicted I might add) which of course in the great scheme of things is meaningless.
The ministers are too-ing and fro-ing as to how Europe is to be run and in particular the banking system which is a lovely thing to do before the Christmas break for there is no chance anything will get done and therefore no chance of postponing festivities to meet some silly deadline.
At this stage, Trouble and Strife has spent thousands on gifts for the Grandchildren and I have to go out and get new health insurance because of Obamacare. From this vantage point the world is completely buggered with the sole exception that apparently God still makes whiskey. Speaking of which...
Many have said that the definition of a good negotiation is one in which neither side is entirely happy. Perhaps. But more importantly, the definition of a good negotiator is one who, knowing he holds all the cards, leaves something on the table for the next time. In the next 26 days we shall find out just how good is The Leader. If he holds to this line, it is over the cliff we go I fear and then what happens is any one's guess.
From afar, it must certainly look as though we have all collectively--or separately--lost our minds and I further suspect that The Leader, having somehow attained the moral high ground over the past four years appears to be the eventual winner. As a football coach once said, "It is what it is..." but the cause for concern has been made immeasurably higher I feel as if it is truly capitulation that is the goal it may be unattainable even under the best the Speaker of the House can do because he just may not have the votes to deliver a signed surrender document. With that in mind, over the cliff we go and frankly, one has to ask one's self, "Self, do I want to be part of this game any longer?" At that point the sheer exhaustion and disinterest on the part of natural purchasers of Treasury obligations coupled with a complete lack of understanding as to what the game now is could result in an attitude in the face of the next auction of, "I just may sit this one out." The absent(s) will be noticed; the slip in coverage ratio will be noticed; interest rates will move upward and the next big sound will be the talking heads trying to figure out what a rise of 50 b.p. across a $16 trillion bundle of debt might mean to the economy. These things have a way of feeding upon one another. Somebody will buy it but by that time the damage will have already been done. I think Krugman has done his job; he has convinced the administration that the Market will always be there for the United States so additional spending is not a problem. He may be right--probably is--but at what cost, immediate and future? I don't know; sadder yet, neither does he.
Over there, the Dutch Auction continues apace with report terrific results for the Greeks (as predicted I might add) which of course in the great scheme of things is meaningless.
The ministers are too-ing and fro-ing as to how Europe is to be run and in particular the banking system which is a lovely thing to do before the Christmas break for there is no chance anything will get done and therefore no chance of postponing festivities to meet some silly deadline.
At this stage, Trouble and Strife has spent thousands on gifts for the Grandchildren and I have to go out and get new health insurance because of Obamacare. From this vantage point the world is completely buggered with the sole exception that apparently God still makes whiskey. Speaking of which...
Thursday, November 8, 2012
PREDICTABLE
The Greek Parliament approved the Euro 13+ billion austerity package late last night but with considerable pain. The vote was 153-147 with a number of ministers in the ruling coalition voting against the plan who were then promptly thrown out of the ruling body. The result was predicted but not the blood spilt...in the chamber that is; no one seems to care much what was going on with the thousands of rioters outside. Well perhaps that is too harsh but there is another vote on Sunday as to the complete budget and while the predictions for this are also for it's passage, the events of the past few days makes this one more iffy. Following the vote it was announced this morning that the unemployed rate for those under 25 was 58% and overall 26%. That is truly quite astounding and clearly dangerous. Given numbers like this and the dissent in the ranks it is hard to imagine this coalition hanging together for very long and if it falls a new election will surely bring into governance the parties on the far left. Game, set, match at that point. Sunday is going to be interesting. Nevertheless, the Greeks will get there money by hook or by crook and thereby avoid default later in the month.
While this little drama was being played out, Angie and David had a lovely dinner at No. 10 and Angie told David that Europe without the UK was unthinkable. Right, says David, you lot forget about an extra billion for the fat cats in Brussels and about that universal financial governance, you can have it if we have a veto and we stay. Whether dessert was served before Angie's departure remains unreported. To be remembered: the Brits HATE Brussels as well as those who there reside. Apparently, in honor of his guest the PM commissioned a poll, revealed this morning, that had 49% of all Brits ready to leave the EU NOW! What a host! I'm beginning to think this thing is real. At the same time the Old Lady and the ECB announced that they were holding rates steady which for the UK means QE is pretty much over. Sr. Draghi also made it clear today that he was pretty much done talking about Greece and Spain, for as far as he is concerned it is now purely a political matter.
In that regard, Spain had a pretty good auction today across the maturity spectrum even selling about 700 million in 20 year...at a yield of around 7%. I would call that fulfilling a special request and in these times it's good to keep your friends even at the 7% level. Next stop, Greece on Sunday.
Everyone was quiet over here as the markets began to digest the results of the election. The talk all centered around what compromises will be made and by who to avoid fiscal catastrophe come January 1, but not many answers were given. The equity markets sold off big time again which makes me believe, although as I keep saying I know nothing about equities that this is turning into what amounts to a major repricing of risk to the upside. Not good. The Suit is gone at the end of the year and if he is smart, The Leader will announce his new choice for Secretary of the Treasury sooner rather than later. It would appear that the People's Choice is Erskin Bowles which IMHO would work. If he chooses one of the inner circle...well, just let's say I wouldn't be long much of anything. Next week I hope.
I'm off tomorrow to do some pro bono lecturing in the am and unless there is something REALLY important I'm taking tomorrow off and resting up for a big weekend of college football, noon to midnight on Saturday.
While this little drama was being played out, Angie and David had a lovely dinner at No. 10 and Angie told David that Europe without the UK was unthinkable. Right, says David, you lot forget about an extra billion for the fat cats in Brussels and about that universal financial governance, you can have it if we have a veto and we stay. Whether dessert was served before Angie's departure remains unreported. To be remembered: the Brits HATE Brussels as well as those who there reside. Apparently, in honor of his guest the PM commissioned a poll, revealed this morning, that had 49% of all Brits ready to leave the EU NOW! What a host! I'm beginning to think this thing is real. At the same time the Old Lady and the ECB announced that they were holding rates steady which for the UK means QE is pretty much over. Sr. Draghi also made it clear today that he was pretty much done talking about Greece and Spain, for as far as he is concerned it is now purely a political matter.
In that regard, Spain had a pretty good auction today across the maturity spectrum even selling about 700 million in 20 year...at a yield of around 7%. I would call that fulfilling a special request and in these times it's good to keep your friends even at the 7% level. Next stop, Greece on Sunday.
Everyone was quiet over here as the markets began to digest the results of the election. The talk all centered around what compromises will be made and by who to avoid fiscal catastrophe come January 1, but not many answers were given. The equity markets sold off big time again which makes me believe, although as I keep saying I know nothing about equities that this is turning into what amounts to a major repricing of risk to the upside. Not good. The Suit is gone at the end of the year and if he is smart, The Leader will announce his new choice for Secretary of the Treasury sooner rather than later. It would appear that the People's Choice is Erskin Bowles which IMHO would work. If he chooses one of the inner circle...well, just let's say I wouldn't be long much of anything. Next week I hope.
I'm off tomorrow to do some pro bono lecturing in the am and unless there is something REALLY important I'm taking tomorrow off and resting up for a big weekend of college football, noon to midnight on Saturday.
Thursday, August 16, 2012
AS PREDICTED
The WSJ had as its lead story today the fall-out from the thug Lawsky's actions against Standard Chartered and it wasn't pretty reading. The Brits are screaming mad as well they should be and talks of retaliation are in the air. I would rather not be the CEO of a non-American bank these days as I would have no idea to whom to listen and in what manner the game is being played. There are far too many regulators and many are not professionals but rather political thugs looking to score quick points. In the not-too-distant-future look for legislation placing the regulation of all foreign banks in the hands of the Feds or the Federal Reserve. This being an election year and Cuomo and Lawsky being Democrats the Administration will give this one a pass but no matter which party wins in November, international pressures--and not just from Europe--will bring about the change in governance of which I am speaking. The State of New York, having been run for years by political hacks may have just killed the goose with the bright, shiny egg.
Now remember my writing at one point that if you wish to learn the intentions of this Administration simply read the New York Times on a daily basis where you will find in addition to "All the News That's Fit To Print' (in accordance with our political philosophy) what to expect from Washington. This morning, once again shilling for the Administration, the NYT let it be known that Mr. Corzine will probably skate on any criminal prosecution for his role in the MF Global disaster. No kidding. After having this thing slow-walked by his former partner, now regulator, Gary Gensler, treated to the astonishing--or so it would appear--actions of the Federal prosecutors who did not grant immunity to the company's treasury official who authorized the transfers without even asking for a proffer and not even being questioned in regard to his 10-K statements, Johnny-boy is happily trading his family money seemingly without a care in the world.
To say this stinks is an understatement but let us remember that Corzine was the no.1 fund raiser for The Leader and was the odds-on favorite to succeed The Suit in the second Obama administration if there is to be one. Probably the only good thing to come out of this may be the realization that the piece of garbage known as Sarbanes/Oxley isn't worth the paper on which it is printed. Keep in mind that if one signs a 10-K it makes no difference if a material misstatement of fact is deliberate or accidental; sign it and you're toast. It's a joke, can it and while one is at it perhaps the repeal of Dodd/Frank can be accomplished as well. This dual act of contrition may mark the finest moment in financial regulation since...hold on, I'll have to back to you tomorrow on that. Then again, the research may take a long time.
Now remember my writing at one point that if you wish to learn the intentions of this Administration simply read the New York Times on a daily basis where you will find in addition to "All the News That's Fit To Print' (in accordance with our political philosophy) what to expect from Washington. This morning, once again shilling for the Administration, the NYT let it be known that Mr. Corzine will probably skate on any criminal prosecution for his role in the MF Global disaster. No kidding. After having this thing slow-walked by his former partner, now regulator, Gary Gensler, treated to the astonishing--or so it would appear--actions of the Federal prosecutors who did not grant immunity to the company's treasury official who authorized the transfers without even asking for a proffer and not even being questioned in regard to his 10-K statements, Johnny-boy is happily trading his family money seemingly without a care in the world.
To say this stinks is an understatement but let us remember that Corzine was the no.1 fund raiser for The Leader and was the odds-on favorite to succeed The Suit in the second Obama administration if there is to be one. Probably the only good thing to come out of this may be the realization that the piece of garbage known as Sarbanes/Oxley isn't worth the paper on which it is printed. Keep in mind that if one signs a 10-K it makes no difference if a material misstatement of fact is deliberate or accidental; sign it and you're toast. It's a joke, can it and while one is at it perhaps the repeal of Dodd/Frank can be accomplished as well. This dual act of contrition may mark the finest moment in financial regulation since...hold on, I'll have to back to you tomorrow on that. Then again, the research may take a long time.
Thursday, August 2, 2012
THE HEADLINER
At the Rock Concert (as suggested by Carter) the headliner, Mario Monti, came on and bombed. I don't know why he bothered as he had nothing to offer and didn't even drop the discount rate which was a no brainer. Markets reacted accordingly but quite frankly, not as badly as I had expected. It's August and nobody's home but you can push a "sell" button laying on a beach anywhere these days and that didn't happen to the extent I thought it would. Especially in currencies. The Euro closed at 1.2183 which was down .0048 and is undoubtably headed towards 1.1800 or lower IMHO but let's look on the bright side: that was the level that was predicted when the Euro made its debut so what have we lost? Ok so it did go 0.89 at one point years back but think how happy the German exporters will be if history repeats itself.
And speaking of Angie's mob, it is best to understand I think that Sr. Monti had zip a week or so ago when he talked in those "whatever it takes" terms. Why he did it I'm not sure but it looked like he was trying, by himself, to put The Boys from Berlin in a corner. Admirable, but risky and not terribly smart. They simply said, "Nein." Imagine, they didn't even listen to The Suit who was right in Monti's corner. Shocking. Unfortunately, what he is now left with is...well, niente. He tried to play a weak hand as well as he could and the Germans called his bluff. Is there a back-up plan you ask? Frankly, I don't know because in the manner and to the extent in which Monti was shot down behind the scenes indicates that the Germans have their tails up and the wind behind them. They want tribute from those that want their money in the form of control over Euroland finances; nothing less. I see very little wiggle room in which to deal with their position. Spain--as they are in the eye of the storm--may be forced to surrender which will undoubtably bring down the government and usher in a period of chaos. The next month should tell.
Monti, as smart as he is and he is very smart, occasionally says some really silly stuff. He indicated today that he was prepared to stabilize or reduce long term rates for Spain and others through secondary market purchases of the long dated bonds. That works when that is all there is but when faced with a huge supply of new issues before the year-end, one has to wonder what would be the result of an exercise such as this if undertaken. If the market knows the ECB cannot participate in the new issueance directly the "on the run" is going to yield more than the secondary market price if it can be priced at all. That suggestion didn't help the credibility of the ECB one bit.
It hasn't been a good week for anyone on either side of the pond and the jobs number comes out at 8:30 tomorrow. A stinker will really top it off so hang on for what could be a wild ride. We'll be here.
And speaking of Angie's mob, it is best to understand I think that Sr. Monti had zip a week or so ago when he talked in those "whatever it takes" terms. Why he did it I'm not sure but it looked like he was trying, by himself, to put The Boys from Berlin in a corner. Admirable, but risky and not terribly smart. They simply said, "Nein." Imagine, they didn't even listen to The Suit who was right in Monti's corner. Shocking. Unfortunately, what he is now left with is...well, niente. He tried to play a weak hand as well as he could and the Germans called his bluff. Is there a back-up plan you ask? Frankly, I don't know because in the manner and to the extent in which Monti was shot down behind the scenes indicates that the Germans have their tails up and the wind behind them. They want tribute from those that want their money in the form of control over Euroland finances; nothing less. I see very little wiggle room in which to deal with their position. Spain--as they are in the eye of the storm--may be forced to surrender which will undoubtably bring down the government and usher in a period of chaos. The next month should tell.
Monti, as smart as he is and he is very smart, occasionally says some really silly stuff. He indicated today that he was prepared to stabilize or reduce long term rates for Spain and others through secondary market purchases of the long dated bonds. That works when that is all there is but when faced with a huge supply of new issues before the year-end, one has to wonder what would be the result of an exercise such as this if undertaken. If the market knows the ECB cannot participate in the new issueance directly the "on the run" is going to yield more than the secondary market price if it can be priced at all. That suggestion didn't help the credibility of the ECB one bit.
It hasn't been a good week for anyone on either side of the pond and the jobs number comes out at 8:30 tomorrow. A stinker will really top it off so hang on for what could be a wild ride. We'll be here.
Tuesday, July 17, 2012
DISPATCHES FROM WASHINGTON
On an iPad yet which makes it doubly hard.
The chairman went before the Senate today and spoke in code which as of this moment the market has deciphered to mean that when he can get all of his colleagues more or less on board he will engage in some more interest rate manipulation...ah...monetary easing which will of course result in absolutely nothing. Getting no real answer on that the Senators moved on to the latest political football, the L'Affair Libor and with one or two exceptions an appalling lack of understanding which of course no real surprise.
The thing that I don't get about all this is whether the Democrats, in their haste to wage another assault on the financial service industry have decided to throw The Suit overboard which appeared to be the case last week or portray him as a Hero for "informing" the Bank of England back in 2008 as to irregularities in Libor reporting. That seemed to be the theme today. The Chairman actually took a swipe at the Brits in saying that it was their job to do something. Now, now children.
Notably in the Chairman's testimony today was his remark that the method of determining Libor was "fundamentally flawed." Memo to the Chairman: It has always been fundamentally flawed. It has been fundamentally flawed for the past 50 years or so. Everyone in the business has known that; anyone who says they are surprised to hear that is either a dog catcher or a liar. If this nonsense is still around next week when I get back to a real Machine I'll put out a few war stories about rate settings Ihave known. In the mean time I Sincerely hope the news cycle dies in that period as the looming collapse of the fiscal state of the nation might, as an alternative, get some traction.
It's summer in Euroland but the only thing you really have to know is that the Greeks announced that they will be doing no more belt tiGhtening past what they have already done which was met with somewhat less that shocked disbelief by Greece watchers. Spanish two year yields fell nicely on more talk about support for the banks and as money gets pumped into the institutions German, Dutch and Austrians are grabbing as much of it as they can and running away. As predicted, as the interbank exposures are paid down with the new "capital" infusions, the interbank continues to remain moribund with only cross-border exposures moving...downward...and economies across the zone slide even deeper into recession. A couple of my more Liberal buddies in this town are hopping mad at the Euros: they think only in terms of them messing up the. Reelection campaign of The Leader. It's 101F today. Do you think it might be the heat?
The chairman went before the Senate today and spoke in code which as of this moment the market has deciphered to mean that when he can get all of his colleagues more or less on board he will engage in some more interest rate manipulation...ah...monetary easing which will of course result in absolutely nothing. Getting no real answer on that the Senators moved on to the latest political football, the L'Affair Libor and with one or two exceptions an appalling lack of understanding which of course no real surprise.
The thing that I don't get about all this is whether the Democrats, in their haste to wage another assault on the financial service industry have decided to throw The Suit overboard which appeared to be the case last week or portray him as a Hero for "informing" the Bank of England back in 2008 as to irregularities in Libor reporting. That seemed to be the theme today. The Chairman actually took a swipe at the Brits in saying that it was their job to do something. Now, now children.
Notably in the Chairman's testimony today was his remark that the method of determining Libor was "fundamentally flawed." Memo to the Chairman: It has always been fundamentally flawed. It has been fundamentally flawed for the past 50 years or so. Everyone in the business has known that; anyone who says they are surprised to hear that is either a dog catcher or a liar. If this nonsense is still around next week when I get back to a real Machine I'll put out a few war stories about rate settings Ihave known. In the mean time I Sincerely hope the news cycle dies in that period as the looming collapse of the fiscal state of the nation might, as an alternative, get some traction.
It's summer in Euroland but the only thing you really have to know is that the Greeks announced that they will be doing no more belt tiGhtening past what they have already done which was met with somewhat less that shocked disbelief by Greece watchers. Spanish two year yields fell nicely on more talk about support for the banks and as money gets pumped into the institutions German, Dutch and Austrians are grabbing as much of it as they can and running away. As predicted, as the interbank exposures are paid down with the new "capital" infusions, the interbank continues to remain moribund with only cross-border exposures moving...downward...and economies across the zone slide even deeper into recession. A couple of my more Liberal buddies in this town are hopping mad at the Euros: they think only in terms of them messing up the. Reelection campaign of The Leader. It's 101F today. Do you think it might be the heat?
Friday, July 13, 2012
DEAD TIME
I have nothing to write about because nothing happened. Oh yeah, Italy got itself down graded again and there is talk of Burlusconi running for office again. Old boy has heart which may get stopped if he tries it. Just kidding.
The Chinese posted some great economic numbers and the market shot ahead, then during the day someone said, "Hold on, this is China," and down they went, only to roar back at the close with the DOW up 200 and change. Shorts getting square for the weekend? Beats me.
Yesterday, Warren Buffett joined with Erskin Bowles and the Wyoming Wing Nut Alan Simpson in calling for the adoption of something like the plan put forward by the two old boys last year. You might remember the Simpson/Bowles plan was commissioned by The Leader who promptly ignored it when published. Between then and now Buffett has been making a fool out of himself, wandering about the country with The Leader in every "tax the rich" scheme The Leader can dream up. Where the hell was he when we needed him?
Sooo, having nothing to do I decided to search the web to see what is being written about Libor and the "scandal." The latest piece of breaking news is that The Suit, then head of the NY Fed in 2008, wrote the Bank of England that something was up with Libor. Had you been paying attention--and I know you were--this space told you that last week or at least that the Fed was aware of irregularities in 2007. Needless to say, the Bank of England and the Fed filed this great revelation and got about the business of saving the world which was considerably more important at the time. But in addition to this piece of nothingness, I became aware of the fact that pretty much everything that has been written about Libor, especially in regard to it's history, is wrong. Dead wrong. Including Wikopedia. I mentioned this once before, but if you wish to fully understand the history of Libor and the role it has played in International finance, start with Moscow Narodny Bank--yes, the trade bank of the Soviet Union back in the good ol' days--for it was this entity that first started lending dollars in London as far as anybody can tell and it was this activity from which came Libor.
NMB had some pretty good bankers and a goodly assortment of Moscow Center hoods, and for special friends used to have terrific lunches in their office on Moorgate which usually ended the woorking day around 3:00pm.
Anyway, I'm killing time. We are baby-sitting out in the Beltway next week so coverage will be spotty, but I'll try to keep in touch. Looking out the window in looks as though it might rain. That's that wet stuff, isn't it? We in the fly-over zone have a hard time remembering.
The Chinese posted some great economic numbers and the market shot ahead, then during the day someone said, "Hold on, this is China," and down they went, only to roar back at the close with the DOW up 200 and change. Shorts getting square for the weekend? Beats me.
Yesterday, Warren Buffett joined with Erskin Bowles and the Wyoming Wing Nut Alan Simpson in calling for the adoption of something like the plan put forward by the two old boys last year. You might remember the Simpson/Bowles plan was commissioned by The Leader who promptly ignored it when published. Between then and now Buffett has been making a fool out of himself, wandering about the country with The Leader in every "tax the rich" scheme The Leader can dream up. Where the hell was he when we needed him?
Sooo, having nothing to do I decided to search the web to see what is being written about Libor and the "scandal." The latest piece of breaking news is that The Suit, then head of the NY Fed in 2008, wrote the Bank of England that something was up with Libor. Had you been paying attention--and I know you were--this space told you that last week or at least that the Fed was aware of irregularities in 2007. Needless to say, the Bank of England and the Fed filed this great revelation and got about the business of saving the world which was considerably more important at the time. But in addition to this piece of nothingness, I became aware of the fact that pretty much everything that has been written about Libor, especially in regard to it's history, is wrong. Dead wrong. Including Wikopedia. I mentioned this once before, but if you wish to fully understand the history of Libor and the role it has played in International finance, start with Moscow Narodny Bank--yes, the trade bank of the Soviet Union back in the good ol' days--for it was this entity that first started lending dollars in London as far as anybody can tell and it was this activity from which came Libor.
NMB had some pretty good bankers and a goodly assortment of Moscow Center hoods, and for special friends used to have terrific lunches in their office on Moorgate which usually ended the woorking day around 3:00pm.
Anyway, I'm killing time. We are baby-sitting out in the Beltway next week so coverage will be spotty, but I'll try to keep in touch. Looking out the window in looks as though it might rain. That's that wet stuff, isn't it? We in the fly-over zone have a hard time remembering.
Friday, March 2, 2012
THE LIKES OF WHAT?
Regular readers may well have formed the impression that I am not a particular fan of The Suit...Timothy Geither, the Secretary of the Treasury of the United States. I'm not, but not even inmy nightmares could I have dreamed up a more self-serving, nonsensical, historically innacurate and completely partisian piece of rubbish that The Suit served up today on the op ed page of the Wall Street Journal. It is a panderinhg piece for the implementation of possibly the worst piece of legislation in the past 25 years, the Dodd/Frank consumer reform and protection act--and that's saying something. If not implemented he warns we will have learned nothing and forgotten everything relating to our most recent financial crisis caused, when you get right down to the bottom line, a lack of adaquate regulation. Perhaps we should explore The Suits unique positioning over the years that allows him to make this claim.
The Leader and his water carriers love to blame most of what occurred on financial deregulation, implying that it was the Republican Party that pushed for it. True, but what is forgotten that the real champion of deregulation was Mr. Clinton's Treasury Secretary, Robert Rubin and the deregulatory act was signed not by Mr. Bush but by Mr. Clinton on 1999. Central to that effort especially in dealing with the Congress was Mr. Rubin and his off-side? Why, none other than The Suit, who was deregulating every step of the way. In the clubbie little world of Goldman Sachs alumni, it was Mr. Rubin who recommended that The Suit became President of the NY Fed to the then Chairman, a sitting Goldman partner, who steared the nomination through the Board and thereby put The Suit in the chair where he was responsible for the most powerful and important financial oversight institution in the world. In this role he failed miserably, not because of lack of resources or authority, but because of lack of interest, knowledge and leadership. Understand this: the Fed needed no legislation; if you were reviewed and under the control of the Fed and told to jump, the only answer was, "how high?" Oh sure, you could drop a dime or two and maybe get cut a bit of slack but in the end you did as you were told. Problem was no one was told to jump. As an aside, the present President, Billy the Dud is also an alumnus of Goldman but that's another story.
In regard to The Suit, even his admirers...and there are many...will admit that his management approach is bottom up; not one to put himself in a position to take the first bullet is our boy. He is a consenus builder and when his Rabbis like the way things are going he's not going to be the one that points out 40x leverage might not be great for the system. Oh no. In the article he points out that he had no authority over the Bear Sterns and Fanny and Freddies of this world which is true in a strict lega; sense but the appalling exposure of Bear and Lehman was well known and debated within the Fed because of the counterparties who WERE regulated by the Fed...and debated, and debated, and debated. Nothing emerged but silence. He blames the derivative market as well which played little or no role in the events leading to the collapse but were a major cause for concern after the fact. And his claim that Dodd/Frank is not complex? He is made to look the fool by the testimony of Bernanke this week who informed the Congress that after a year there is still no firm timetable for implementation.
Have we ever seen the likes of a Secretary of the Treasury like this one? All one can ask is honesty and competence and in this we have neither. This is a political water-carrier rather than the primus inter pares of financial leadership in the western world. One almost wishes that MF Global never happened; in Corzine one had a real leader: of course he almost caused Goldman to go broke in '97 with his Russian bet, destroyed New Jersey and bankrupted MF Global. He was the replacement: just remember I did say "almost."
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Nothing happened in Euroland today...certainly nothing good. Thursday is the day. Have a great weekend.
The Leader and his water carriers love to blame most of what occurred on financial deregulation, implying that it was the Republican Party that pushed for it. True, but what is forgotten that the real champion of deregulation was Mr. Clinton's Treasury Secretary, Robert Rubin and the deregulatory act was signed not by Mr. Bush but by Mr. Clinton on 1999. Central to that effort especially in dealing with the Congress was Mr. Rubin and his off-side? Why, none other than The Suit, who was deregulating every step of the way. In the clubbie little world of Goldman Sachs alumni, it was Mr. Rubin who recommended that The Suit became President of the NY Fed to the then Chairman, a sitting Goldman partner, who steared the nomination through the Board and thereby put The Suit in the chair where he was responsible for the most powerful and important financial oversight institution in the world. In this role he failed miserably, not because of lack of resources or authority, but because of lack of interest, knowledge and leadership. Understand this: the Fed needed no legislation; if you were reviewed and under the control of the Fed and told to jump, the only answer was, "how high?" Oh sure, you could drop a dime or two and maybe get cut a bit of slack but in the end you did as you were told. Problem was no one was told to jump. As an aside, the present President, Billy the Dud is also an alumnus of Goldman but that's another story.
In regard to The Suit, even his admirers...and there are many...will admit that his management approach is bottom up; not one to put himself in a position to take the first bullet is our boy. He is a consenus builder and when his Rabbis like the way things are going he's not going to be the one that points out 40x leverage might not be great for the system. Oh no. In the article he points out that he had no authority over the Bear Sterns and Fanny and Freddies of this world which is true in a strict lega; sense but the appalling exposure of Bear and Lehman was well known and debated within the Fed because of the counterparties who WERE regulated by the Fed...and debated, and debated, and debated. Nothing emerged but silence. He blames the derivative market as well which played little or no role in the events leading to the collapse but were a major cause for concern after the fact. And his claim that Dodd/Frank is not complex? He is made to look the fool by the testimony of Bernanke this week who informed the Congress that after a year there is still no firm timetable for implementation.
Have we ever seen the likes of a Secretary of the Treasury like this one? All one can ask is honesty and competence and in this we have neither. This is a political water-carrier rather than the primus inter pares of financial leadership in the western world. One almost wishes that MF Global never happened; in Corzine one had a real leader: of course he almost caused Goldman to go broke in '97 with his Russian bet, destroyed New Jersey and bankrupted MF Global. He was the replacement: just remember I did say "almost."
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Nothing happened in Euroland today...certainly nothing good. Thursday is the day. Have a great weekend.
Wednesday, February 29, 2012
GOOD OR BAD?
Funny question to ask about 529 billion, isn't it? That's the number Helicopter Mario dropped into the Euro banks today. Direct deposits. Same day funds. Spend it as you will. Problem solved or merely an expression of how bad the problem really is? That's a trillion Euros in 3 months right out of thin air. I must say, the sheer audacity of it gives one pause. I guess that's what central banks are there for but when I said the Euros are going to bail out their banks I never conceived of such a series of steps. Breathtaking.
And yet, without growth in Euroland what has been accomplished? Despite brave talk, Greece is conceeded to be dying, Portugal sees no light ant the end of the tunnel, and as Carter points out in his note today, Spain missed all of it's targets and is warning of more misses in the future. Will the Finns, he askes, turn a light on the entire mess? I doubt it. They will follow their brother states recognizing perhaps that there is no reason for them to play the heavy when their view of the future is probably the future itself. The next few days will determine whether the Euro banks will begin to engage in the normal funding of the system or will the paralysis continue. If the decision is the latter the conclusion will be that the can continues to be kicked with the invariable result unchanged. I think, however, that we have finally reached the end game which has been so long predicted. Draghi indicated today that he is done. Whether that is his final word or that he is merely trying to scare the banks and governments remains to be seen. I think though that he must realize that if this doesn't work then there is little more he can do.
Meanwhile on the political front, the mutterings between nations continue. The Suit has once again jumped into the fray calling for trillions in Euros for a higher, stronger "ring fence" to the delight, I am sure, of Frau Merkel whose voters' money will make up the majority of any increase in the bail-out fund, and who has no intention of committing political suicide. A penny more and that's where the Finns will go tilt not to mention the Dutch and all the rest of that virtuous northern mob. Mr. Bernanke, in his mandated talk to the Congress today did little to improve upon the mood. Whilst he held that things were looking better they weren't looking that much better an he expected them to remain lousy through 2013. The job situation had improved but he reiterated what some observers have been saying for weeks now that the improvement in the job numbers reflects the fact that a whole bunch of people have permanently dropped out of the job search. Frankly, I don't know who to believe anymore but the mood down at the coffee shop seems slightly up beat. BUT, petrol hit $3.89 today which I know sounds awfully low to our European friends but is ugly to us Yanks especially in the fly-over zone which is a low price region. It's a big country and people think nothing of driving 60 miles round trip to work every day The distances are vast compaired, say, to Europe. Buses and trains don't work out here. I know we use a lot but understand, please, the differences.
In that vein, there is a very importand get-together this weekend in D.C. between The Leader and the Prime Minister of Israel. They hate each other. Subject: Iran. This overlay has yet to be factored in regard to the global economic climate to the extent I think it should be. We should watch this carefully for all the good it will do. And Monday's openings. As I write the temperature is 16C. We expect snow by midnight. Don't tell me things aren't troubled out there.
And yet, without growth in Euroland what has been accomplished? Despite brave talk, Greece is conceeded to be dying, Portugal sees no light ant the end of the tunnel, and as Carter points out in his note today, Spain missed all of it's targets and is warning of more misses in the future. Will the Finns, he askes, turn a light on the entire mess? I doubt it. They will follow their brother states recognizing perhaps that there is no reason for them to play the heavy when their view of the future is probably the future itself. The next few days will determine whether the Euro banks will begin to engage in the normal funding of the system or will the paralysis continue. If the decision is the latter the conclusion will be that the can continues to be kicked with the invariable result unchanged. I think, however, that we have finally reached the end game which has been so long predicted. Draghi indicated today that he is done. Whether that is his final word or that he is merely trying to scare the banks and governments remains to be seen. I think though that he must realize that if this doesn't work then there is little more he can do.
Meanwhile on the political front, the mutterings between nations continue. The Suit has once again jumped into the fray calling for trillions in Euros for a higher, stronger "ring fence" to the delight, I am sure, of Frau Merkel whose voters' money will make up the majority of any increase in the bail-out fund, and who has no intention of committing political suicide. A penny more and that's where the Finns will go tilt not to mention the Dutch and all the rest of that virtuous northern mob. Mr. Bernanke, in his mandated talk to the Congress today did little to improve upon the mood. Whilst he held that things were looking better they weren't looking that much better an he expected them to remain lousy through 2013. The job situation had improved but he reiterated what some observers have been saying for weeks now that the improvement in the job numbers reflects the fact that a whole bunch of people have permanently dropped out of the job search. Frankly, I don't know who to believe anymore but the mood down at the coffee shop seems slightly up beat. BUT, petrol hit $3.89 today which I know sounds awfully low to our European friends but is ugly to us Yanks especially in the fly-over zone which is a low price region. It's a big country and people think nothing of driving 60 miles round trip to work every day The distances are vast compaired, say, to Europe. Buses and trains don't work out here. I know we use a lot but understand, please, the differences.
In that vein, there is a very importand get-together this weekend in D.C. between The Leader and the Prime Minister of Israel. They hate each other. Subject: Iran. This overlay has yet to be factored in regard to the global economic climate to the extent I think it should be. We should watch this carefully for all the good it will do. And Monday's openings. As I write the temperature is 16C. We expect snow by midnight. Don't tell me things aren't troubled out there.
Thursday, February 16, 2012
SUPER MARIO, ANNOYING MASSIMO
Admittedly, the guy has been spot on but when you get an email as I did just 45 minutes ago celebrating his accuracy with the single word, "HA," it becomes annoying. Mario Draghi, after suggesting for the past week that he wasn't involved, quietly announced a few hours ago that indeed, the ECB would swap Greek bonds held in portfolio which had been purchased at a discount for new bonds in the same amount...in other words giving the Greeks the benefit of the discount. It was as Massimo predicted. Details to follow.
That announcement took a bit of the sting out of Ambros Eveans-Prichard's piece in the Telegraph today (as noted by Carter) that the Germans, Dutch and the Finns want Greece out of the EU which caused raised eyebrows all over Europe. Ambros is the financial editor of the Telegraph and knows his way around. Added to his column the fact that as reported earlier in the day the German foreign minister, Herr Schauble, was heard proclaiming that Greece should postpone its elections until April so that every candidate would have to proclaim on the bail out, convinced a bunch of people that Ambrose was on to something. I'm not. What is going on right now is one of the biggest cover-your-ass exercises on the part over just about every politician in Western Europe in trying to avoid how they allowed a 30 billion Euro problem with a country that didn't count grow into this monster that threatens the entire EU. They haven't yet THOUGHT about what happens if (when?) the Greeks bolt. Herr Schauble was of course speaking logically. He is unfortunately as dumb as a rock in the area of international diplomacy which is of course his job.
The Greeks, whilst announcing that they had found another pile of millions to cut out of their budget (mostly military spending) in response to the Troika's demands told Schauble to, in effect, commit an unnatural and impossible act...with some good reason I might add. And so, we stumble on towards Monday when I suspect another constituancy will be heard from and another postponement will occur. Eventually, we will stumble into the default that no one wants and for which no one is prepared, OR, we may just find out who is the most scardie-'fraid system-wise with the CDOs out there and starts screming bloody murder. To be truthful, that's the wild card that I simply don't understand and about which I have not nearly enough information and on which I would certainly appreciate some guidance. There has been some chatter that one of the worried parties is The Suit but from all I can determine our banks are pretty relaxed about this in an individual sense although there is a growing concern that a messy default may not be a good thing...even by Jamie Dimon who, I am told, got his first passport last week. Meanwhile, bond yields are creeping up again and would of course would be much more elevated without the ECB.
I've been trying to work out in my mind what the fall-out will be when what I believe to be the inevitable occurs, frankly without success. I've asked a number of folks for whom I have a great deal of respect and the general consensus is that too much time is being spent on worrying about individual institutions. System integration and fund flows are where the emphasis should be placed by way of containment. In short, the continuing of the liquidity of the system is primary. Funny how we always come back to that and yet it is barely mentioned in the lead-up to the crisis and this situation is no exception. And yet, I can't help thinking that maybe even that is overdone and if the EU loses Greece, who cares? Other than the enormous amount of egg that would have to be wiped off political visages, is there a lasting, negative consequence? I'm still thinking. I hope Massimo doesn't come up with a theory. I'd hate to have to tell him at some point he was right on this one.
That announcement took a bit of the sting out of Ambros Eveans-Prichard's piece in the Telegraph today (as noted by Carter) that the Germans, Dutch and the Finns want Greece out of the EU which caused raised eyebrows all over Europe. Ambros is the financial editor of the Telegraph and knows his way around. Added to his column the fact that as reported earlier in the day the German foreign minister, Herr Schauble, was heard proclaiming that Greece should postpone its elections until April so that every candidate would have to proclaim on the bail out, convinced a bunch of people that Ambrose was on to something. I'm not. What is going on right now is one of the biggest cover-your-ass exercises on the part over just about every politician in Western Europe in trying to avoid how they allowed a 30 billion Euro problem with a country that didn't count grow into this monster that threatens the entire EU. They haven't yet THOUGHT about what happens if (when?) the Greeks bolt. Herr Schauble was of course speaking logically. He is unfortunately as dumb as a rock in the area of international diplomacy which is of course his job.
The Greeks, whilst announcing that they had found another pile of millions to cut out of their budget (mostly military spending) in response to the Troika's demands told Schauble to, in effect, commit an unnatural and impossible act...with some good reason I might add. And so, we stumble on towards Monday when I suspect another constituancy will be heard from and another postponement will occur. Eventually, we will stumble into the default that no one wants and for which no one is prepared, OR, we may just find out who is the most scardie-'fraid system-wise with the CDOs out there and starts screming bloody murder. To be truthful, that's the wild card that I simply don't understand and about which I have not nearly enough information and on which I would certainly appreciate some guidance. There has been some chatter that one of the worried parties is The Suit but from all I can determine our banks are pretty relaxed about this in an individual sense although there is a growing concern that a messy default may not be a good thing...even by Jamie Dimon who, I am told, got his first passport last week. Meanwhile, bond yields are creeping up again and would of course would be much more elevated without the ECB.
I've been trying to work out in my mind what the fall-out will be when what I believe to be the inevitable occurs, frankly without success. I've asked a number of folks for whom I have a great deal of respect and the general consensus is that too much time is being spent on worrying about individual institutions. System integration and fund flows are where the emphasis should be placed by way of containment. In short, the continuing of the liquidity of the system is primary. Funny how we always come back to that and yet it is barely mentioned in the lead-up to the crisis and this situation is no exception. And yet, I can't help thinking that maybe even that is overdone and if the EU loses Greece, who cares? Other than the enormous amount of egg that would have to be wiped off political visages, is there a lasting, negative consequence? I'm still thinking. I hope Massimo doesn't come up with a theory. I'd hate to have to tell him at some point he was right on this one.
Thursday, January 26, 2012
IT DIDN'T DAWN
How does one say "Nuttin'" in Greek. The Suit shipped off Lael Brainard, Under Secretary of State for International Affairs and a very bright lady by all reports who the Euros can't stand to...yep, you guessed it...Euroland to whip those children into shape and to tell them to get their act together. So much the news from the Dawn. The New YorkTimes reports that the Hedgies are trying to bail on about 3 billion in Greek debt as it's beginning to look a lot like default time instead of Christmas and finding it hard to do so. The Times can always be counted on to elucidate the obvious in most things financial and usually 2 or 3 days after everyone else has figured it out. Betcha nothing happens til next week giving everyone time to get back from Davos. Ah, the joy of it all.
One thing I did not mention about The Leader's speech of the other evening was his promise to fire up his invertigative commission to get to the bottom of the financial collapse of a couple of years ago by really going after the banks and the Wall Streeters that made it happen. A more transparent political ploy in an election year one cannot possible imagine but as expected, the Times jumped for joy in their leading article today. A waste of time, a waste of money and a pure smoke screen. Games for the masses, throw them to the Lions! Of course the Lions have no teeth and what will finally be discovered--as if discovery is the goal--is that there were a lot of not-so-very-bright people who did some really stupid things but probably nothing to get them thrown in jail. What will be accomplished is just another pain the butt for the industry which will impede them from making any progress in trying to kick-start this economy. The dog barks, and the caravan moves on although at a snall's pace. For the next 10 months we are to view everything through the prism of the election. Nothing else counts.
Comments on the actions of the Fed have been muted which surprises me a bit but given the reaction of the stock market today given 24 hours to think about it my views are apparently shared by a number of folks out there: if they're worried, I'm worried and clearly, they are worried. So here we are one month into a major election year, Euroland still buggered, the Fed worried and the stock market gurus becoming more cautious by the day. Not a great scenario. Then again, Tomorrow, Tomorrow...it's only a day away.
One thing I did not mention about The Leader's speech of the other evening was his promise to fire up his invertigative commission to get to the bottom of the financial collapse of a couple of years ago by really going after the banks and the Wall Streeters that made it happen. A more transparent political ploy in an election year one cannot possible imagine but as expected, the Times jumped for joy in their leading article today. A waste of time, a waste of money and a pure smoke screen. Games for the masses, throw them to the Lions! Of course the Lions have no teeth and what will finally be discovered--as if discovery is the goal--is that there were a lot of not-so-very-bright people who did some really stupid things but probably nothing to get them thrown in jail. What will be accomplished is just another pain the butt for the industry which will impede them from making any progress in trying to kick-start this economy. The dog barks, and the caravan moves on although at a snall's pace. For the next 10 months we are to view everything through the prism of the election. Nothing else counts.
Comments on the actions of the Fed have been muted which surprises me a bit but given the reaction of the stock market today given 24 hours to think about it my views are apparently shared by a number of folks out there: if they're worried, I'm worried and clearly, they are worried. So here we are one month into a major election year, Euroland still buggered, the Fed worried and the stock market gurus becoming more cautious by the day. Not a great scenario. Then again, Tomorrow, Tomorrow...it's only a day away.
Thursday, January 19, 2012
MEDITATION
That's how yesterday was spent; in meditation. I was saying to myself, "Self, is this the way they are really going to go? Have they really all gotten together and said ok, we've run out of ideas and when you run out of ideas just throw money at it?" It really looks that way.
Now I am still having a hard time believing the conslusion to which I have come but there doesn't seem to be any other explaination. Over here it started last week with Ben and Billy the Dud seemingly ready to buy every upside down house in the country. This week the clamor...muted to be sure...was for QE III in a "meaningful" amount as one observer put it which is code of course for a trillion dollars. Over there, the ECB made it very clear that it was prepared to come up with at least as much as the wildly successful 3 year facility for the banks and yesterday the IMF announced that it was looking for an additional $500 billion and asking the EU to increase it's bail-out fund to at least a trillion Euros to contain the risk of contagion in the financing of Europe's sovereign debt...a 450 billion Euro increase at a minimum. Now let's see, close to a trillion from the ECB, a trillion from the bail-out fund, $500 million from the IMF (minimum); where is Everett Dirksen when you need him? At least the Euro side is sterilized--we know where that's going to wind up--but the dollars from QE III? Boy, I bet the rest of the world, places like Brazil for example, are just going to love that. But do these guys care? Nah. Not a thought. The battle that Brazil has to fight in taming the inflation that these actions create...well, that's their problem.
The IMF announcement is a classic. Any lawyer can tell you that the first thing that is taught to you in law school is never ask a question unless you're damn well sure what the answer is going to be, so in this case for all the denials (and they were immediate) that the U.S. was going to participate in this money-raising exercise, we are. Mme. Lagrande is a very good lawyer and with the U.S. holding 18% of the voting stock of the IMF unless she was sure the U.S. was there, she never would have said a word. This will of course cause an uproar in Congress but The Leader and The Suit don't need Congress for this one.
And there, dear readers, is the plan. There is no longer any doubt that all the money in the world will be made available just as we speculated last week but now I am sure. I'm shocked I suppose but not surprised. Even the time frame is revealed which coincides with the maturity of the ECB facility. For the next three years. Tomorrow, Mario Monti will release his restructuring plan for Italy. The early leaks point to a well-reasoned approach and a recognition that what ails Italy and by extention the EU, is not simply a financing bind but, indeed, a structural deformity in Italian society, with specific steps to be taken within a specified timetable, which I bet is three years. We shall see. In the mean time Italy and Spain both had relatively successful bond auctions with a modest reduction in yields for both but still at levels far too high to be sustainable.
Within my meditation came the realization that this was one hell of a bet. Monti I am sure is serious in what he is trying to do, but if the returns are not what are expected and the growth that is absolutely essential is not achieved--not only in Italy mind you but throughout the Union--the waste of resources and the destruction of wealth that will result will be monumental and chaotic. These guys have gone all-in and I gues I never thought that they would. I honestly thought that the plan would be to muddle along and deal with a minor default here and there but now that option appears to be gone. Now, Greece HAS to work. Now, Portugal cannot be ignored. Now, Spain CANNOT be allowed to fail despite the enormous financial burden it faces which, through the disclosure of the debt owed by the independent states, grows daily. At least that's what I came up with. I would certainly like to hear from you as to whether you think I'm correct or what it is that I have missed
Now I am still having a hard time believing the conslusion to which I have come but there doesn't seem to be any other explaination. Over here it started last week with Ben and Billy the Dud seemingly ready to buy every upside down house in the country. This week the clamor...muted to be sure...was for QE III in a "meaningful" amount as one observer put it which is code of course for a trillion dollars. Over there, the ECB made it very clear that it was prepared to come up with at least as much as the wildly successful 3 year facility for the banks and yesterday the IMF announced that it was looking for an additional $500 billion and asking the EU to increase it's bail-out fund to at least a trillion Euros to contain the risk of contagion in the financing of Europe's sovereign debt...a 450 billion Euro increase at a minimum. Now let's see, close to a trillion from the ECB, a trillion from the bail-out fund, $500 million from the IMF (minimum); where is Everett Dirksen when you need him? At least the Euro side is sterilized--we know where that's going to wind up--but the dollars from QE III? Boy, I bet the rest of the world, places like Brazil for example, are just going to love that. But do these guys care? Nah. Not a thought. The battle that Brazil has to fight in taming the inflation that these actions create...well, that's their problem.
The IMF announcement is a classic. Any lawyer can tell you that the first thing that is taught to you in law school is never ask a question unless you're damn well sure what the answer is going to be, so in this case for all the denials (and they were immediate) that the U.S. was going to participate in this money-raising exercise, we are. Mme. Lagrande is a very good lawyer and with the U.S. holding 18% of the voting stock of the IMF unless she was sure the U.S. was there, she never would have said a word. This will of course cause an uproar in Congress but The Leader and The Suit don't need Congress for this one.
And there, dear readers, is the plan. There is no longer any doubt that all the money in the world will be made available just as we speculated last week but now I am sure. I'm shocked I suppose but not surprised. Even the time frame is revealed which coincides with the maturity of the ECB facility. For the next three years. Tomorrow, Mario Monti will release his restructuring plan for Italy. The early leaks point to a well-reasoned approach and a recognition that what ails Italy and by extention the EU, is not simply a financing bind but, indeed, a structural deformity in Italian society, with specific steps to be taken within a specified timetable, which I bet is three years. We shall see. In the mean time Italy and Spain both had relatively successful bond auctions with a modest reduction in yields for both but still at levels far too high to be sustainable.
Within my meditation came the realization that this was one hell of a bet. Monti I am sure is serious in what he is trying to do, but if the returns are not what are expected and the growth that is absolutely essential is not achieved--not only in Italy mind you but throughout the Union--the waste of resources and the destruction of wealth that will result will be monumental and chaotic. These guys have gone all-in and I gues I never thought that they would. I honestly thought that the plan would be to muddle along and deal with a minor default here and there but now that option appears to be gone. Now, Greece HAS to work. Now, Portugal cannot be ignored. Now, Spain CANNOT be allowed to fail despite the enormous financial burden it faces which, through the disclosure of the debt owed by the independent states, grows daily. At least that's what I came up with. I would certainly like to hear from you as to whether you think I'm correct or what it is that I have missed
Tuesday, December 6, 2011
HIGH FIVES
Such was the picture all across the world of Nikki and Angie holding up their hands to each other with outstreached fingers. "What does that mean," said the wags? Who the hell cares say I. That moment it time was about as meaningful or important as The Suit's first go-around with the German Finance Minister today. Got to hand it to him, however. Here's this guy, the head money guy in an administration that in three years has raised the national debt by four trillion dollars and who, in contravention of law, has managed not to present a budget for the running of the government of the United States for over two years. And he's over there telling the Euros how to get out of THEIR mess? That friends is what is called south of the Rio Grande, baludos which means...oh never mind.
Anyway, despite who's talking to who, My Really Smart Friend, Larry, says the game is over for Euroland and his thinking, as usual, is quite sound and based on experiences that we have both shared. To encapsulate the same, Larry's point is that it is all about Italy at this point. Forget Greece, both of us agree Greece is gone and perhaps Portugal as well but neither count and frankly, as I have often said, should never have counted. Italy is the key but not from the standpoint as it is being viewed at this point in time but from a somewhat longer standpoint, perhaps in a span of 12 to 18 months.
The immediate gameplan is to keep Italy current in the sense of the servicing of its debt. Europe could not stand an Italian default in the sense of what is being discussed regarding Greece or for that matter Portugal. Remember, it it still about the banks and the associated politics and they are still not ready. And so, the game plan is to keep Italy alive--to buy time so to speak--for as long as possible until...well, that's where the trouble starts.
Both of us made our bones in the debt crisis of the 1980s. Both of us made our careers in international finance and sovereign risk finance and it is therefor understandable that we make comparisons with that period when looking at Europe today. I would think that both of us are looking at what has occured over the last few days at the possible changes in the governance of the Italian state and asking ourselves is this going to be enough? In Larry's case the answer is no; in mine, I'm not sure but it I must admit the prospects aren't brilliant.
The problem in regard to Italy is exactly the same as we found in Mexico and Latin America in the late eighties and if we think about it for a minute what we are about to face in the United States. We can service debt: the government can always raise taxes but that is not a solution. The only real solution is growth and the question then becomes is the level of debt in the case of Italy so great that it will, under any future scenario, sap so many resources in its servicing to prohibit the level of growth needed without a massive restructuring of governance and a net reduction in the stock of debt outstanding. In the case of Mexico and Latin America it was not until the stock of debt was reduced (by approximately 35%) thru the use of Brady Bonds that conditions were set for the renewal of growth which has culminated in the vast improved economies all across the region. Italy appears to be today as Latin America was so many years ago in the remedy appears to be the same: a large reduction in the stock of debt through a restruction and forgiveness before growth can resume. And it is here where two old friends diverge; I think it could happen within the context of a restructured Euro zone, Larry does not as he believes any attempt would have to take place in the context of the strict fiscal straightjacket as proposed by Frau Merkel and M. Sarkorzy and that will simply take too long. In that he is correct but tune in tomorrow and I'll tell you why I'm more optomistic...not much mind you but hey, someone has to be.
Anyway, despite who's talking to who, My Really Smart Friend, Larry, says the game is over for Euroland and his thinking, as usual, is quite sound and based on experiences that we have both shared. To encapsulate the same, Larry's point is that it is all about Italy at this point. Forget Greece, both of us agree Greece is gone and perhaps Portugal as well but neither count and frankly, as I have often said, should never have counted. Italy is the key but not from the standpoint as it is being viewed at this point in time but from a somewhat longer standpoint, perhaps in a span of 12 to 18 months.
The immediate gameplan is to keep Italy current in the sense of the servicing of its debt. Europe could not stand an Italian default in the sense of what is being discussed regarding Greece or for that matter Portugal. Remember, it it still about the banks and the associated politics and they are still not ready. And so, the game plan is to keep Italy alive--to buy time so to speak--for as long as possible until...well, that's where the trouble starts.
Both of us made our bones in the debt crisis of the 1980s. Both of us made our careers in international finance and sovereign risk finance and it is therefor understandable that we make comparisons with that period when looking at Europe today. I would think that both of us are looking at what has occured over the last few days at the possible changes in the governance of the Italian state and asking ourselves is this going to be enough? In Larry's case the answer is no; in mine, I'm not sure but it I must admit the prospects aren't brilliant.
The problem in regard to Italy is exactly the same as we found in Mexico and Latin America in the late eighties and if we think about it for a minute what we are about to face in the United States. We can service debt: the government can always raise taxes but that is not a solution. The only real solution is growth and the question then becomes is the level of debt in the case of Italy so great that it will, under any future scenario, sap so many resources in its servicing to prohibit the level of growth needed without a massive restructuring of governance and a net reduction in the stock of debt outstanding. In the case of Mexico and Latin America it was not until the stock of debt was reduced (by approximately 35%) thru the use of Brady Bonds that conditions were set for the renewal of growth which has culminated in the vast improved economies all across the region. Italy appears to be today as Latin America was so many years ago in the remedy appears to be the same: a large reduction in the stock of debt through a restruction and forgiveness before growth can resume. And it is here where two old friends diverge; I think it could happen within the context of a restructured Euro zone, Larry does not as he believes any attempt would have to take place in the context of the strict fiscal straightjacket as proposed by Frau Merkel and M. Sarkorzy and that will simply take too long. In that he is correct but tune in tomorrow and I'll tell you why I'm more optomistic...not much mind you but hey, someone has to be.
Monday, December 5, 2011
FROM THE RIDICULOUS TO THE RIDICULOUS
What else can one say. Nikki and Angie came out--hand in hand--I might add, to their press conference today where they announced that they were in complete agreement on a totally impossible plan to regigger the EU by March of next year. Did what they said make sense? More so than not I suppose but there is absolutely no chance for their plan to be accomplished within the time frame. None. But the "complete agreement" part resulted in the DOW opening up 145. So much for the "it's all about Europe" supposed sentiment on Wall Street which if true those two could come out tomorrow and announce that they are in complete agreement that the moon is made out of and equal mixture of Brie and Limburger and we could watch the DOW reach 15,000. It's nuts.
Not to be outdone S & P followed up with the thought that they might have to downgrade every country in Europe if the big meeting at the end of this week doesn't ratify the joint proposals. Do any of you get the feeling--like me--that the irrelevancy of the rating agencies looms larger day by day? I mean, there's a gutsy call and a threat all rolled up into one bundle. The fact that France is trading around an A+ level rather than the AAA rating currently assigned, seems not to have arrived on S & P's doorstep as of yet. I'm sure this will galvanize the Heads of State into action.
And to top of this day of stupidity, The Suit's journey across the pond was characterized as The Leader putting "tremendous pressure" on the Europeans and The Suit as "being prepared to show the Europeans how to do it" by Jim Kramer on CNBC today proving that his supply of stupid pills need not yet be renewed by his friends at Treasury. Having been thrown the hell of of Europe just over a month ago, I guess The Suit feels with some added advice from his buddy, Jim, he's once again ready for prime time. This is while the Vice President, good ol' Joe Biden is announcing to the world that the Euros "Know what to do." Mindless.
I got a missive over the weekend from my Really Smart Friend, Larry, that I'll share, in part, with you tomorrow. It is not happy reading and perhaps a bit too negative in scope from my standpoint, but I confess that his stuff requires multiple reads and I'm not there yet. Tell you one thing, however. The Euro closed at 1.33 and change today after the "full agreement." I don't think either of us would be long.
More tomorrow
Not to be outdone S & P followed up with the thought that they might have to downgrade every country in Europe if the big meeting at the end of this week doesn't ratify the joint proposals. Do any of you get the feeling--like me--that the irrelevancy of the rating agencies looms larger day by day? I mean, there's a gutsy call and a threat all rolled up into one bundle. The fact that France is trading around an A+ level rather than the AAA rating currently assigned, seems not to have arrived on S & P's doorstep as of yet. I'm sure this will galvanize the Heads of State into action.
And to top of this day of stupidity, The Suit's journey across the pond was characterized as The Leader putting "tremendous pressure" on the Europeans and The Suit as "being prepared to show the Europeans how to do it" by Jim Kramer on CNBC today proving that his supply of stupid pills need not yet be renewed by his friends at Treasury. Having been thrown the hell of of Europe just over a month ago, I guess The Suit feels with some added advice from his buddy, Jim, he's once again ready for prime time. This is while the Vice President, good ol' Joe Biden is announcing to the world that the Euros "Know what to do." Mindless.
I got a missive over the weekend from my Really Smart Friend, Larry, that I'll share, in part, with you tomorrow. It is not happy reading and perhaps a bit too negative in scope from my standpoint, but I confess that his stuff requires multiple reads and I'm not there yet. Tell you one thing, however. The Euro closed at 1.33 and change today after the "full agreement." I don't think either of us would be long.
More tomorrow
Monday, November 21, 2011
SPANISH STEPS
As anticipated, the Spanish elections threw out the left-of-center government that has been running the country for 7 years and brought back the conservatives but with a greater margin of victory than was expected. What effect this will have on the finances of Euroland is anyone's guess but in the day after markets were down substantially all around the continent and on Wall Street as well. There is simply no good news out there and Europe dominates all markets will the nagging concern that with the short Thankgiving week on this side of the pond we might but caught out from Wednesday's close to next week. And speaking of "over here," the bankruptcy trustee for MF Global suggested that the amount of missing funds may be far greater than initially expected with the figure now considerably above $1.3 billion which surly means that this was no mere accounting mistake but a serious and deliberate fraud whose ramifications could well be immense. Hell of a way to start a week.
Aside from the obvious blame game, I wonder if anything useful can be learned from the disgraceful episode other than a call for more totally useless regulation to prevent a re-do of the already preventable and a public relations nighmare for the administration already in the process of running away from Corzine who, given many reports, was the odds-on favorite to replace The Suit at Treasury and a serious money man for The Leader. That part of it will be fun at least. What should come out of this IMHO is an understanding of what I've been saying all along: banks die on the liability side of their balance sheet. I'm will to bet some serious money--at least 10 bucks--that when the full story is finally know, it will be revealed that the intermingling of client funds was not a long term event but in response to the loss of funding close to the date of the failure of the firm.
You know, banking has been going on for quite a few years now and for the most part it hasn't changed very much. Oh sure, there are new products all the time but all are really variations on a theme and at the end of the day banks are intermediaries in bringing excess funds (deposits) to areas of needed liquidity through the medium of a loan. Whether that liquidity comes in the form of a loan, bond, swap or what have you, or by whom it is delivered is really unimportant. And yet this is the facet of banking that is the subject of practically all the interest--and regulation--be it on a wholesale of retail basis. Not to belabor the point (that's a lie), but we have lost sight of the truly important aspect of this business which is what is the nature and the source of that liquidity with which the bankers act in their disintermediary capacity?
In the good old days, banks would accept demand and time deposits from their liability clients and lend them to their asset clients. That deposit base as it was called was jealously guarded as it represented the life blood of the institution. Handled properly, that base was remarkably stable, often aided in the past by regulation, ostensibly designed to protect the depositor but having another role as well in that through the limiting of competition (interest caps) and protection mechanisms (FDIC insurance) had the effect of insuring the continuity of the deposit relationship. The system worked quite well and the bankers limited their extention of credit to cash flow lending which rarely had a final maturity of more than seven years and that term was a fairly recent development. Then things changed.
My late friend, Stanley, was fond of saying, "Banking is what bankers do." And so banking changed--as for the better is a topic that can be argued forever. Certainly the asset side of the business has changed dramatically especially as to the length and terms of exposures as well as the nature of the instruments in which bankers deal. But more importantly has been the change in the liability side of a bank's balance sheet, not in the nomiclature of what we find and surely there is that, but in the nature of the funding whereas the overall duration of the same has become incredibly short--so short that overnight purchased deposits regularly fund asset exposures of 10 years or more. Our entire system is a time bomb and when one is faced with the lack of confidence and credability such as occured in 2008 and such is occuring today, the bomb explodes either on a systemic or on an individual institutional basis. This is, I believe, is what happened with MF Global. What's the next step?
Aside from the obvious blame game, I wonder if anything useful can be learned from the disgraceful episode other than a call for more totally useless regulation to prevent a re-do of the already preventable and a public relations nighmare for the administration already in the process of running away from Corzine who, given many reports, was the odds-on favorite to replace The Suit at Treasury and a serious money man for The Leader. That part of it will be fun at least. What should come out of this IMHO is an understanding of what I've been saying all along: banks die on the liability side of their balance sheet. I'm will to bet some serious money--at least 10 bucks--that when the full story is finally know, it will be revealed that the intermingling of client funds was not a long term event but in response to the loss of funding close to the date of the failure of the firm.
You know, banking has been going on for quite a few years now and for the most part it hasn't changed very much. Oh sure, there are new products all the time but all are really variations on a theme and at the end of the day banks are intermediaries in bringing excess funds (deposits) to areas of needed liquidity through the medium of a loan. Whether that liquidity comes in the form of a loan, bond, swap or what have you, or by whom it is delivered is really unimportant. And yet this is the facet of banking that is the subject of practically all the interest--and regulation--be it on a wholesale of retail basis. Not to belabor the point (that's a lie), but we have lost sight of the truly important aspect of this business which is what is the nature and the source of that liquidity with which the bankers act in their disintermediary capacity?
In the good old days, banks would accept demand and time deposits from their liability clients and lend them to their asset clients. That deposit base as it was called was jealously guarded as it represented the life blood of the institution. Handled properly, that base was remarkably stable, often aided in the past by regulation, ostensibly designed to protect the depositor but having another role as well in that through the limiting of competition (interest caps) and protection mechanisms (FDIC insurance) had the effect of insuring the continuity of the deposit relationship. The system worked quite well and the bankers limited their extention of credit to cash flow lending which rarely had a final maturity of more than seven years and that term was a fairly recent development. Then things changed.
My late friend, Stanley, was fond of saying, "Banking is what bankers do." And so banking changed--as for the better is a topic that can be argued forever. Certainly the asset side of the business has changed dramatically especially as to the length and terms of exposures as well as the nature of the instruments in which bankers deal. But more importantly has been the change in the liability side of a bank's balance sheet, not in the nomiclature of what we find and surely there is that, but in the nature of the funding whereas the overall duration of the same has become incredibly short--so short that overnight purchased deposits regularly fund asset exposures of 10 years or more. Our entire system is a time bomb and when one is faced with the lack of confidence and credability such as occured in 2008 and such is occuring today, the bomb explodes either on a systemic or on an individual institutional basis. This is, I believe, is what happened with MF Global. What's the next step?
Tuesday, October 25, 2011
SANGUE PER SANGUE
TThere will be no meeting of the finance ministers tomorrow so I was half right. There will be a meeting of the heads of state so that some completely useless but high-sounding communique can be issues because they have to say something as silly as that sounds. Given what occured over the weekend it might be interesting to watch the goings-on because it might turn into something like an Israeli parliament meeting and an actual fist-fight might break out.
I must admit, for the first time I'm beginning ro get worried not because the facts have become any different but because of the rhetoric which reache a feaver pitch on Sunday with Burlesconi being called out and insuted by Sarkozy and Angie and Frank telling the British P.M., David Cameron, "You have missed an excellent chance to shut up."
Politicians of all stripes have huge egos (The Leader being an exception as he is nothing but ego) and it is therefore not a particularly wise thing to do to tell one's peers to shut up or how to run his country but that is exactly what happened. The fact that most of this came from the little popinjay Sarkozy made it even worse as there is wide agreement that he is the dumbest guy (or girl) in the room. In addition, the fact the Mme. Sarkozy is a hell of a lot better looking than Burlesconi's once-17 year old girl friend even made things worse if I know Italians. The meeting disolved into a shouting match and obviously things have yet to calm down, hence, no concrete action on Wednesday.
I tell this tale not because in the long run this incident will be the deciding point but because the well is now poisoned on a personal level and that makes agreement even harder. In addition, while a British P.M. is used to being insulted in public as are his political colleagues, they take badly to this occuring at the hands of a fro...er...Frenchman, they react badly. Mr Cameron had to resist and turn back a very strong demand from members of his own party to call for a referendum on Britian's continued membership in the EU which would surely result in a demand that Britian depart. Whilst not a killer, that would be a devestating blow to the Union.
Sarkozy's actions are clearly the result of the shades being raised on the state of his country's credit and in particular on the state of the French banking system which is now being exposed as having done nothing to get it's house in order for the past three years. Keeping in mind that the present head of the IMF, Mme. Lagrande, was the former French finance minister and in that role responsible for the condition of the banking system, the IMF is now seriously compromised. Today, The Suit, who in the recent past had always made warm, fuzzy noises about helping out particularly through the good offices of the IMF, started walking back that cat now that things were getting ugly. Sarkozy is desperate in the sense that he is way behind in the early polls and must protect French assets in the game if he has any chance at all of holding on to the Presendency. Obviously the leaked number of 108 billion Euros of new capital believed to be needed is based upon only what the remaining Euros will pony up in any sort of recapitalization plan which will not go very far, meaning France will have to come up with a lot more on its own for its own banks, which means bye, bye their triple-A rating which means...oh why bother. The fact is NOBODY knows what's needed because there has been no agreement on a figure of debt relief for Greece, and Italy has to be delt with first which translates into Burlesconi and his party (coalition?) must do what Merkel and Sarkozy want him to do.
That the Euros have cocked this up so badly almost defies belief. Greece is rapidly becoming an afterthought and more and more of this drama's happy ending has been placed upon the badly maligned Burlosconi to do the right thing according to the maligners. Will he? We shall see. Oh, by the by, for the non-Italian speakers out there: Sangue per Sangue? That means blood for blood. Italians are very serious about certain things.
I must admit, for the first time I'm beginning ro get worried not because the facts have become any different but because of the rhetoric which reache a feaver pitch on Sunday with Burlesconi being called out and insuted by Sarkozy and Angie and Frank telling the British P.M., David Cameron, "You have missed an excellent chance to shut up."
Politicians of all stripes have huge egos (The Leader being an exception as he is nothing but ego) and it is therefore not a particularly wise thing to do to tell one's peers to shut up or how to run his country but that is exactly what happened. The fact that most of this came from the little popinjay Sarkozy made it even worse as there is wide agreement that he is the dumbest guy (or girl) in the room. In addition, the fact the Mme. Sarkozy is a hell of a lot better looking than Burlesconi's once-17 year old girl friend even made things worse if I know Italians. The meeting disolved into a shouting match and obviously things have yet to calm down, hence, no concrete action on Wednesday.
I tell this tale not because in the long run this incident will be the deciding point but because the well is now poisoned on a personal level and that makes agreement even harder. In addition, while a British P.M. is used to being insulted in public as are his political colleagues, they take badly to this occuring at the hands of a fro...er...Frenchman, they react badly. Mr Cameron had to resist and turn back a very strong demand from members of his own party to call for a referendum on Britian's continued membership in the EU which would surely result in a demand that Britian depart. Whilst not a killer, that would be a devestating blow to the Union.
Sarkozy's actions are clearly the result of the shades being raised on the state of his country's credit and in particular on the state of the French banking system which is now being exposed as having done nothing to get it's house in order for the past three years. Keeping in mind that the present head of the IMF, Mme. Lagrande, was the former French finance minister and in that role responsible for the condition of the banking system, the IMF is now seriously compromised. Today, The Suit, who in the recent past had always made warm, fuzzy noises about helping out particularly through the good offices of the IMF, started walking back that cat now that things were getting ugly. Sarkozy is desperate in the sense that he is way behind in the early polls and must protect French assets in the game if he has any chance at all of holding on to the Presendency. Obviously the leaked number of 108 billion Euros of new capital believed to be needed is based upon only what the remaining Euros will pony up in any sort of recapitalization plan which will not go very far, meaning France will have to come up with a lot more on its own for its own banks, which means bye, bye their triple-A rating which means...oh why bother. The fact is NOBODY knows what's needed because there has been no agreement on a figure of debt relief for Greece, and Italy has to be delt with first which translates into Burlesconi and his party (coalition?) must do what Merkel and Sarkozy want him to do.
That the Euros have cocked this up so badly almost defies belief. Greece is rapidly becoming an afterthought and more and more of this drama's happy ending has been placed upon the badly maligned Burlosconi to do the right thing according to the maligners. Will he? We shall see. Oh, by the by, for the non-Italian speakers out there: Sangue per Sangue? That means blood for blood. Italians are very serious about certain things.
Thursday, October 6, 2011
"I WILL DEMAND..."
In reference to concrete moves on the Euro debt situation is what The Leader was talking about this morning in his press conference or camapign speech...call it what you will. Another of my more frequent political comments: who the Hell does The Leader think he is in speaking to the Europeans like that unless somebody elected him King of Europe which somehow I have missed? The Suit is one thing but the President of the United States? I suspose I should feel exonerated as I caught hell when I wrote that the administration was going to use Europe as a scapegoat for their economic failures but I do not. Forgive me again but this is simply disgraceful and unworthy of this country and its leadership. "Nuff said.
Meanwhile, over in Euroland a few other fearless predictions of your intrepid blogger have become fact. The ECB today announced that it was prepared to make available whatever is needed to keep the financial system liquid including 13 month loans to individual banks and substantial amounts through the purchase of "covered bonds" from the banking system. What are covered bonds? Well, these are bonds that have as security specified assets on the books of the issuer which sounds just great except I suspect that those "assets" are going to be suspiciously resembling soverign bonds from places like...well...Greece which kinda defeats the purpose of the thing unless the bond purchases are non-recourse which I simply can't believe as that would mean the ECB would become the creditor. And why 13 month deposits? Well, you can look that one up yourself but as I remember any thing over a year is treated as term funding under the Basel Rules and that effects capital ratio calculations in ways that I simply don't remember. The point is the ECB has pulled out all the stops and that's not a bad thing.
It was a funny thing, however, because it what will probably be his last meeting with reporters before retirement M. Trichet emphasized once again how proud he was of the actions of the ECB in keeping inflation in check for the past 10 years and that repeating that performance over the next 10 years would be the single most important role for the bank. With gazillions of Euros pouring out of the place to keep the banks afloat that might become a tad difficult given that the latest inflation numbers are higher that expected and above the band that te ECB has set. Does this mean that the hopes of a European rate cut are dashed? Apparently no member of the press asked that question proving that the press is as inept over there as they are over here.
Not to be outdone, the Bank of England announced what appears to be the British version of Quantitative Easing with plans to purchase up to 75 billion pounds from banks over the course of the next few months. We have not mentioned the British banks lately but rest assured they, too, are the proud owners of a pill of rubbish from the south of Europe although I suspect--and it has been suggested to me--that they have been far more aggressive in taking provisions than their Euro counterparts. In response to all of this free money flying around the world, global stock markets recorded triple digit gains; now what would the markets do if there was something real and material that just happened to pop up? The latest goings-on were easily predictable (by me) and I think they have lessened the risk of another liquidity crisis which, don't get me wrong, is not a bad thing at all. With this now behind us (?) perhaps some attention can be paid to the simple, little task of curing the fiscal ills of three or four soverign nations.. Allons Enfants!
And in that regard, yesterday the Dutch gave their approval to an increase in the bail-out facility leaving Slovenia as the only major (sic) member of the zone not to have given the idea a thumbs up. A few days ago I believe I said Austria instead of the Netherlands and for that error I apologize. Proves I'm human and can get things wrong. Came as a real shock, let me tell ya.
Meanwhile, over in Euroland a few other fearless predictions of your intrepid blogger have become fact. The ECB today announced that it was prepared to make available whatever is needed to keep the financial system liquid including 13 month loans to individual banks and substantial amounts through the purchase of "covered bonds" from the banking system. What are covered bonds? Well, these are bonds that have as security specified assets on the books of the issuer which sounds just great except I suspect that those "assets" are going to be suspiciously resembling soverign bonds from places like...well...Greece which kinda defeats the purpose of the thing unless the bond purchases are non-recourse which I simply can't believe as that would mean the ECB would become the creditor. And why 13 month deposits? Well, you can look that one up yourself but as I remember any thing over a year is treated as term funding under the Basel Rules and that effects capital ratio calculations in ways that I simply don't remember. The point is the ECB has pulled out all the stops and that's not a bad thing.
It was a funny thing, however, because it what will probably be his last meeting with reporters before retirement M. Trichet emphasized once again how proud he was of the actions of the ECB in keeping inflation in check for the past 10 years and that repeating that performance over the next 10 years would be the single most important role for the bank. With gazillions of Euros pouring out of the place to keep the banks afloat that might become a tad difficult given that the latest inflation numbers are higher that expected and above the band that te ECB has set. Does this mean that the hopes of a European rate cut are dashed? Apparently no member of the press asked that question proving that the press is as inept over there as they are over here.
Not to be outdone, the Bank of England announced what appears to be the British version of Quantitative Easing with plans to purchase up to 75 billion pounds from banks over the course of the next few months. We have not mentioned the British banks lately but rest assured they, too, are the proud owners of a pill of rubbish from the south of Europe although I suspect--and it has been suggested to me--that they have been far more aggressive in taking provisions than their Euro counterparts. In response to all of this free money flying around the world, global stock markets recorded triple digit gains; now what would the markets do if there was something real and material that just happened to pop up? The latest goings-on were easily predictable (by me) and I think they have lessened the risk of another liquidity crisis which, don't get me wrong, is not a bad thing at all. With this now behind us (?) perhaps some attention can be paid to the simple, little task of curing the fiscal ills of three or four soverign nations.. Allons Enfants!
And in that regard, yesterday the Dutch gave their approval to an increase in the bail-out facility leaving Slovenia as the only major (sic) member of the zone not to have given the idea a thumbs up. A few days ago I believe I said Austria instead of the Netherlands and for that error I apologize. Proves I'm human and can get things wrong. Came as a real shock, let me tell ya.
Monday, October 3, 2011
SURVIVAL...FOR ME
I'm not sure about the Euros. Things are not looking good at all. Today, what everyone suspected became an open fact: Greece cannot meet it's targets to which they had agreed not only for this year but for next year as well. With the outlook bleak, the Euro crashed to 1.32 handle against the dollar with every indication that the fall will continue. Ordinarily, this would be music to Fritz the Exporter's ears but with economic activity down practically everywhere (not unrelated to the European crisis), there is little joy in Germany as to this event. I am sure Frau Merkel must be furious at the Slovaks and the Austrians for not having their acts together for after expending a ton of political capital to get her gang to agree to the stability the Greeks have just put up the best "good money after bad" argument possible and remember, ALL the Euros have to agree to the funding. My bet the the Greeks would get the next installment is looking far more shaky in light of these events but I'm sticking with it if for no other reason that moe time is needed for the Euros to do the undoable.
The choice is becoming more and more clear: save the banks or save Greece because it is now obvious that both cannot be saved. My bet is on the banks...to repeat the refrain it has ALWAYS been about the baanks. I'm therefore getting REALLY disturbed as to what the market geniuses are doing to the values of the U.S. banking system in liking our system to the European crisis in such a direct manner. If you agree with my view that the Euros will save their systems, we're fine, not rock-solid but fine. Of course the Euro view has nothing to do with the sanctity of banking or the protection of the world's economic order. Nothing so simple. Politics, pure and simple. For all practical purposes banking and the European political systems are one in the same as has been explained on these pages before. And shortly, the games will begin. But, as has also been explained, banking is a business based almost entirely on trust. If it becomes that the views of the stock market jerks are gospel and we lose the overall faith in the system things can become ugly very quickly, and the bankers know it. Why is there no bank lending? Simple, the preservation of every penny of liquidity. If our politicians and elected leaders would like to do something useful for a change they might want to quietly start reassuring folks that the situation is under control. Unfortunately, the immediate reaction of this administration is to announce everything with a Hollywood backdrop which would have the exact opposite effect. If The Leader or The Suit holds a press conference the assumption will be that the crisis is already with us. While hardly a fan of Bob Rubin his finest hour was during the mess in 1995 (or was it 1996?) simply walking down the steps of the Treasury to a small news conference. Everything will be ok children; daddy's home.
And Greece? There's life after a restructuring and a default. They need debt relief and they need it desperately. They had also better decide to do this whilst staying in the Euro zone because outside of it their future is bleak--assuming there is a Euro zone in which to stay inside. And therein is the question. Unless this happens very quickly there will not be one. Today's announcement of the reality of Greece was downplayed in the press because we have assumed and rightfully so that this was always the case. Not so for the Europeans who, while mad as hell at the Greeks, still held out hope that the situation might be resolved. That hope is now gone. Time to get real.
The choice is becoming more and more clear: save the banks or save Greece because it is now obvious that both cannot be saved. My bet is on the banks...to repeat the refrain it has ALWAYS been about the baanks. I'm therefore getting REALLY disturbed as to what the market geniuses are doing to the values of the U.S. banking system in liking our system to the European crisis in such a direct manner. If you agree with my view that the Euros will save their systems, we're fine, not rock-solid but fine. Of course the Euro view has nothing to do with the sanctity of banking or the protection of the world's economic order. Nothing so simple. Politics, pure and simple. For all practical purposes banking and the European political systems are one in the same as has been explained on these pages before. And shortly, the games will begin. But, as has also been explained, banking is a business based almost entirely on trust. If it becomes that the views of the stock market jerks are gospel and we lose the overall faith in the system things can become ugly very quickly, and the bankers know it. Why is there no bank lending? Simple, the preservation of every penny of liquidity. If our politicians and elected leaders would like to do something useful for a change they might want to quietly start reassuring folks that the situation is under control. Unfortunately, the immediate reaction of this administration is to announce everything with a Hollywood backdrop which would have the exact opposite effect. If The Leader or The Suit holds a press conference the assumption will be that the crisis is already with us. While hardly a fan of Bob Rubin his finest hour was during the mess in 1995 (or was it 1996?) simply walking down the steps of the Treasury to a small news conference. Everything will be ok children; daddy's home.
And Greece? There's life after a restructuring and a default. They need debt relief and they need it desperately. They had also better decide to do this whilst staying in the Euro zone because outside of it their future is bleak--assuming there is a Euro zone in which to stay inside. And therein is the question. Unless this happens very quickly there will not be one. Today's announcement of the reality of Greece was downplayed in the press because we have assumed and rightfully so that this was always the case. Not so for the Europeans who, while mad as hell at the Greeks, still held out hope that the situation might be resolved. That hope is now gone. Time to get real.
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